Stock Takes: In from the cold? Market re-rates retirement village stocks

Retirement village stocks rebounded in May. Photo / File

Retirement village stocks have been out of favour for some time, but that all changed last month.

Investors, perhaps sensing a shift in sentiment in the residential property market, returned to the sector.

Over the month, Oceania gained 17 per cent, Arvida 16.5 per cent, Ryman 13.6 per cent and Summerset 10.0 per cent.

They were solid gains, though online business travel provider Serko topped the list among S&P/NZX 50 constituents with a 40 per cent gain, thanks in no small part to its latest result, which showed a 154 per cent increase in revenue to $48.02m in the March year.

The retirement village sector has taken heart from Ryman’s successful $902m recapitalisation, which has instilled confidence that the industry has the ability to deal with slower housing activity.

Harbour Asset Management portfolio manager Shane Solly said retirement stocks’ performance over the month reflected the Reserve Bank’s signalling of a 5.5 per cent peak in the official cash rate, and a small change to its loan-to-value ratio rules.

A report from ANZ - the country’s biggest lender - had also clearly aided sentiment about real estate, which augured well for retirement village stocks.

In its report, ANZ said: “We think the floor is here, and now see house prices rising on a quarterly basis from the second half of 2023.

“The RBNZ’s relatively muted response to surging net migration and additional fiscal stimulus in the May MPS surprised us.

“Ultimately, for a time at least, this implies looser monetary conditions than we have been expecting.

“This, combined with surging net migration and the confirmed loosening in LVR restrictions from 1 June, has led us to upgrade our house price forecast.”

Solly says there is a strong link between the residential property market and the retirement village stocks.

“When people make the decision to move into a retirement village that has care, if they have the ability to wait, they will.

“But if you put your house on the market and it doesn’t sell in good time, that’s stressful.

“We don’t need to see house prices running away, but people having the ability to sell their homes is helpful.

“Ryman, Oceania and Arvida have also all talked about a more measured approach to capital expansion, and a more measured approach to care, because the returns from care are not great.”

All up, Solly said the sector was now more focused on improving returns.

“If what the ANZ is saying is correct, then then that’s a more positive backdrop.”

He said demand for retirement village living had always been there. “The question has been the ability of people to sell their properties.

“If we have a more normal residential property market - and it does not need to be exciting - then that will be helpful for the retirement stocks, and that’s been reflected in their share prices.”

Boardroom refresh

Boardroom changes at Ryman may usher in a new era for the market leader.

Dean Hamilton has joined the board and will subsequently take over as chair on July 31, following the annual meeting.

Hamilton is also chair of transtasman civil contractor Fulton Hogan and holds director roles at Auckland International Airport and The Warehouse Group.

Former NZX chair James Miller has also joined the board, and will move into chairing the audit, finance and risk committee.

Miller is chair of Channel Infrastructure and a director of Mercury NZ and Vista Group.

Ryman director George Savvides retired from the board this week, coinciding with the appointment of Hamilton and Miller.

Former NZX chairman James Miller has joined the board of Ryman Healthcare.

Will they, won’t they?

Controversy over whether Auckland Council will sell its 18 per cent stake in Auckland International Airport has not done the company’s share price any harm.

Trading around $8.80, the stock is near pre-Covid levels and appears unperturbed by the possibility of the stake, worth $2.3 billion, going on the market.

In its latest update, the company said March total passenger volumes at Auckland Airport were 81 per cent of the March 2019 figure - in the last full financial year not impacted by the pandemic.

Across the Tasman, confidence appears to be returning to aviation, if Qantas Airways’ latest update is anything to go by.

Qantas said it was on track for a pre-tax profit of up to A$2.475 billion ($2.62b) for the year as demand for travel continued to be strong.

Flying has increased in the current six months as new aircraft arrive, more widebody jets return from long-term storage and operational reliability improves.

Group domestic capacity will be above pre-Covid levels at 104 per cent by the end of the half-year.

International capacity will grow to greater than 80 per cent of pre-Covid levels by the end of the current period, Qantas said.

Tiwai Point's NZ Aluminium Smelters saw its profit drop in the 2022 financial year. Photo / Mike Scott

Tiwai’s profit

Pacific Aluminium (PANZ) has reported financial results relating to its majority interest in NZ Aluminium Smelters, showing an underlying net profit of $122.27m for the 2022 financial year, down from $140.05m a year earlier.

The result was driven by a spike to record-high aluminium prices in the first half of 2022 following Russia’s invasion of Ukraine, and global increases in energy costs.

Prices dropped significantly in the second half of the year before stabilising, NZAS said.

In 2022, NZAS produced 333,689 tonnes of aluminium.

It paid $357m to New Zealand suppliers, including $77m to suppliers in Southland. NZAS also paid a total of $96m in salaries and benefits to employees.

NZAS chief executive Chris Blenkiron said it was a good result that helped the company move beyond the challenging environment for aluminium of recent years.

“We are in a cyclical business, and while 2022′s result is pleasing, aluminium prices have come down from their post-invasion highs, while we saw significant increases to our input costs through 2022 from inflationary and supply-chain pressures,” he said.

“As such, controlling costs is a critical focus in 2023.”

NZAS is 79.36 per cent owned by PANZ, which is part of the Pacific Aluminium business unit of Rio Tinto, and 20.64 per cent by Japan’s Sumitomo Chemical.

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